This is a subscriber-only article
The last specialist study on forest land values – The Irish Forestry Land Market – was published by the Society of Chartered Surveyors Ireland (SCSI) in 2016.
Although average annual afforestation was decreasing at the time, interest in forestry was still strong from farmers and other private investors.
Should SCSI carry out a similar study this year, it will be against a vastly changing forest landscape.
Since 2016, afforestation has declined from 6,500ha to an estimated 2,200ha last year. More worrying has been the decline in farmer interest in afforestation. Annual planting by farmers fell from 7,935ha in 2010 to 1,292ha in 2019 as farmers’ share of the afforestation programme declined from 95% to 36%.
The exclusion of good marginal land from the afforestation programme, the replanting obligation and in recent years a licensing and appeals system have all contributed to lack of interest by farmers in forestry.
Licence delays of up to two years have not only frustrated farmers but also forestry companies, sawmillers, contractors, Coillte, nurseries and other investors.
Yet for all the negativity that surrounds the sector, paradoxically there is still strong interest in forestry as an investment and viable land use.
Annual planting by farmers fell from 7,935ha in 2010 to 1,292ha in 2019
The demand for timber is strong and prices paid by sawmillers, board mills and energy producers remain high, so investors are confident of the long-term markets for timber.
For example, the average log price achieved by Coillte for the third quarter last year was €72/m3, well above the average price recorded since 2015.
Forest sales
This sustained demand for timber at excellent prices is one of the reasons investors continue to purchase mature and semi-mature forests as well as bare land suitable for forestry.
In the absence of an SCSI survey, it is difficult to judge sale trends and prices, especially since 2016.
There are a few indicators that provide sufficient evidence that interest in forestry land is still high.
Forestry offers a good return on investment at a time of historically low bank interest rates, maintains Paul Lafferty of Forsestsales.ie. Lafferty specialises in the sale of forests and land suitable for planting as well as forest products in Ireland. “I have more buyers than forests,” he says.
Location of forest sales
Forest sales are spread across all provinces according to a survey of sites on ForesttoMarket.ie, an umbrella website available to all auctioneers to advertise forestry land for sale.
During the three-year period (2018-2020), 213 forests offered for sale amounted to 3,649ha (Table 1) on the website managed by Forestry Services Ltd, the Kilkenny-based forestry company.
“These indicate a healthy market for forests,” says Paddy Bruton, Forestry Services CEO.
“A trend in recent years has been the sale of forests ‘off market’ by farmers and other growers who wish to offer their properties to a panel of potential buyers without going public.”
More than half the ForesttoMarket.ie sales (116) were located in Connacht and just under a quarter (56) in Munster. The average forest size was 17.1ha, varying from 9.7ha in Leinster to 29.9ha in the three Ulster counties – Donegal, Cavan and Monaghan.
Quality crops with good access, including rights of way, are proving attractive
The Ulster average area is high because out of 23 forest sales, five – all in Donegal – covered areas between 42ha and 123 ha. This is well above the average new forest size of 7.5ha.
Forest sizes in Donegal were relatively large in the 1990s and these are now coming on the market. Annual afforestation from 1991 to 2000 averaged 1,200ha compared with 51ha over the past 10 years.
Attractive sales
“Quality crops with good access, including rights of way, are proving attractive, but forests located on the extremities of the western seaboard counties can be a hard sell due to distance from sawmills and markets,” says Lafferty.
“Forests of all ages sell, but demand is high for crops that have been thinned and within 10 years of clearfell with a strong preference for spruce.”
Price
According to the SCSI survey, the average price paid for forests in 2015 was €9,838/ha. With factors such as location, tree species , age, stocking and access all affecting price, Lafferty is cautious about providing price ranges.
“Forests up to first thinning can fetch in the region of €10,000/ha, while crops that have been thinned and roaded can achieve prices between €15,000 and €20,000 /ha,” he says.
“Top prices are being achieved for choice lots, especially in Leinster and Munster, less so for lots in the west and north, especially if less than 12ha in area.”
He says good bare marginal land prices range from €12,000/ha up to €15,000/ha based on net productive area, especially in Leinster and Munster. “Again, the price is generally lower in the west and north, especially for lots less than 12ha.”
Who’s buying?
Interest is coming from a wide range of investors from large-scale pension funds and corporations to families that want forests for recreational use.
“Demand is strongest from the big international investors with large budgets and an appetite for large quality forests, while smaller lots are attracting Irish investors,” says Lafferty.
“Also, recently, there has been interest from small and big companies with a ‘carbon conscious’ ethos,” he says. “Some of these are in the market for small areas of bare land that would qualify for funding under the native woodland scheme.”
The advice from the IFA to farmers is to hold on to their forests and reap the future financial rewards of thinning and clearfells.
Vincent Nally, chair of the IFA Farm Forestry Committee encourages farmers to continuously manage their forests to maximise revenue. “The increased interest in purchasing forests, especially by large scale corporations demonstrates the value of forests as a long-term investment,” he says.
“There is still a naivety among some farmers about the value of their forests so current prices offered can understandably tempt growers to cash in their assets. The alternative more financially rewarding approach is to realise current and accrued income especially considering zero interest rates at the moment.”
He acknowledges that the cumbersome and costly licensing system along with the replanting obligation are factors that entice some owners to sell.
So, should farmers with forests sell or hold on to their forests? Attractive forests such as 20ha crops – 20-25 years age – of top-quality spruce at second thinning stage can realise €300,000 to €400,000.
The forest income is tax-free while the land is subject to capital gains tax.
The owner who opts to continue managing this crop could receive revenue of €40,000 for two further thinnings and approximately €500,000 from clearfell or a tax-free total of €540,000. Even allowing for reforestation, expenditure of €60,000, the owner is financially better off than selling the forest.
This approach requires planning and continuous management to maximise the real benefit of the crop.
It also requires patience and perseverance as a thinning licence will be required, necessitating a planning site notice and a Natura Impact Statement (NIS) to reduce delays in receiving licence approval. The big payday is at clearfell but unlike other land uses, approval for clearfelling is subject to reforestation and conditions that may require a tree species selection that differs from the original preferred crop.
However, despite numerous obstacles, Vincent Nally strongly advises farmers not to sell if short-term cash flow is not an issue. He also urges the Department to change procedures to a single licence system at the establishment stage.
Advocated in the Mackinnon review, this approach would allow farmers with forests to manage their crops without being subject to repeat licence applications and approvals.
SHARING OPTIONS: